Indian tech firms face renegotiation of contracts by new UK govt.

In the wake of its recent announcement regarding initiating stringent measures to attain noteworthy savings over the ensuing five years, the new coalition government in the UK has now decided to renegotiate the all the existing contracts with the major Indian outsourcing firms that consider the UK government departments as their important clients. A financial website reports that the chief of Britain’s treasury George Osborne has informed the House of Commons that the UK government departments would have to accept budget curtailments up to 25 per cent with a view to cut expenses by approximately $44 billion.

During an assessment of the public sector expenditures on IT in the UK last year, the treasury department had listed the possibility of saving approximately $10.6 billion every year. Earlier this month, Steve Webb, the British minister for pensions, had hinted that the David Cameron government would assess the pensions’ contract with India’s largest outsourcing vendor Tata Consultancy Services (TCS). Steve has said that the government would review the manner in which auto-enrolment was being executed.

It may be mentioned here that early in 2010, TCS had bagged a deal worth approximately $800 million from the Personal Accounts Delivery Authority (PADA) to deal with the state pension scheme in the UK. At that time, the Conservative Party, which is heading the present coalition government in the UK, had opposed the legislation of auto-enrolment that was passed just before the elections in the country.

Incidentally, while the TCS refused to comment on the firm’s PADA deal, a senior executive of another outsourcing firm present having transactions with the UK government said that presently they were renegotiating with the government and was optimist that there would be additional work from the government departments, but at lesser rates. Meanwhile industry experts are of the view that while the government curtails its IT expenditures and seeks vendors at inferior rates, the savings objectives would signify further outsourcing of the non-core jobs. However, the senior research director of TowerGroup, Bob McDowall, does not see any threat of the Tata Consultancy Services’ PADA deal being set aside, but said that the contract would definitely be renegotiated.

Interestingly enough, the augmented spotlight on cost savings will signify that Indian outsourcing firms like TCS and Wipro would be getting more business. Already a number of government departments in the UK have initiated sending their work overseas with a view to cut operational costs as well as deal with the absence of local professionals. For example, HM Revenue & Customs (HMRC), the tax authority in the UK, is commencing an offshore outsourcing pilot project in India with the French technology provider Capgemini. In addition, the government departments in the UK are also ready to adopt new models like cloud computing in a major way with a view to lessen their annual IT spending.